The Tariff System

Tariffs are taxes on imported goods. For most of the nineteenth century, they were the federal government's primary source of revenue, before the income tax took their place.

From the founding through 1913, the federal government raised most of its money through tariffs and the sale of public land. Alexander Hamilton designed the first tariff in 1789 to fund the new government and protect young American industries from British competition. For more than a century, this revenue paid for the army, the navy, federal courts, and the small administrative state of the nineteenth century. Tariffs were also a deeply political issue. Northern manufacturers favored high tariffs to shield their factories. Southern planters opposed them because they raised the cost of imported goods and invited foreign retaliation against cotton exports. The Tariff of 1828, called the Tariff of Abominations by its opponents, helped provoke the Nullification Crisis. The Civil War-era Morrill Tariff and its successors kept rates high for decades. The Underwood Tariff of 1913 lowered rates sharply, made possible by the new revenue from the Sixteenth Amendment. After the Smoot-Hawley Tariff of 1930 deepened the Great Depression by triggering global retaliation, the United States moved toward freer trade through reciprocal agreements. Tariffs returned to political prominence in the 2010s and 2020s as a tool of industrial policy and trade negotiation, though they no longer fund the bulk of federal operations.